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VALUATIONS

VALUATION

Valuation is the process of determining the current worth of an asset or a company; there are many techniques used to determine value. An analyst placing a value on a company looks at the company’s management, the composition of its capital structure, the prospect of future earnings and market value of assets.

WHY IT IS SO IMPORTANT?

Many business owners assume they should only care about how much their business is worth if they are looking to sell or are going through a difficult situation, such as a divorce or corporate breakup. Unfortunately, this is an extremely shortsighted view that misses the bigger picture. Every single business owner should know how much their business is worth, because it is the only measure that takes into consideration where your company has been, where it is today and, most importantly, where it is going in the future. It may be surprising, but in my opinion, valuation is the single most important concept in finance, and it is something that every business owner should know something about. At the end of the day, each of us is in business to create value. And your company’s value captures nearly everything about your business in one easy-to-understand number.